05
Oct

Wrap – Week Ended 10/05/07

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In The Wrap So Far

1) Wrap table

2) A look at declining gas drilling with a comparison to natural gas

3) Dry Bulk Shippers

4) Refiners

 

 

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U.S. Natural Gas Rigs Fall Below Year Ago Levels. According to Baker Hughes the n umber of rigs drilling for gas in the U.S. fell to 1,431, one rig shy of year ago levels.

 rigs-100507.jpg

If you look at the YoY change in the gas rig count you can see from the following two charts and probably take from common sense that a deceleration or reversal in gas drilling eventually leads to higher gas prices.  

gas-rigs-vs-prices-100507.jpg

Here's a Blown Up View of the year over year comparison since gas rigs hit their 20+ year peak just a few short weeks ago. This is the tail end of the area chart above and it better illustrates the rapid shift in YoY drilling levels. If the big boys with deep pockets are curtailing now over prices, how do you think the smaller "mom and pops" operations, many of whom were late to plays like the Barnett and Fayetteville Shales plays or to the Powder River Basin where gas prices have been trading $4 off of Hub, feel about keeping a lot of rigs running right now. Probably not that great. 

rigs-since-peak-yoy-100507.jpg

Dry Bulk Shippers: The group shot the moon this past week led by (QMAR) up 20%, PRGN (up 15%) (no options but interesting new comer) and DRYS (up 9%). From a projections standpoint none of these moved much since most of them work largely on a time charter basis. As shipping day rates surged only DRYS which has almost 100% of vessels in the spot market moving they are essentially repriced every 30 days or so immediately benefits. Annual consensus estimates for DRYS for 2007 and 2008 jumped 4% and 3% respectively this past week so while the company's 9% move on the week yielded a little multiple expansion it still remains the big, cheap dog on the block.

drybulk-100525aaa.jpg

This is a great set of charts showing you the "we're going ballistic Maverick!" style charts for Capasize, Panamax and Supramax vessels. These are not the actually day rates but indexes of them. Note the slight pullback on the Capesize chart and the others still going ballistic as they play catch up.  

  • (DRYS) I plan to trade in an out on volatility and to be in for 3Q earnings on the November 13, the last of the bulk shippers to report.
  • (EGLE) is high on my radar screen as they have a roughly one third of their fleet "repricing" at much higher Supramax rates in the next few months (see the third chart in the great set of charts link above). Moreover, based on current second hand pricing of Handymax vessels (a little smaller and older than the Supramaxes) it would take roughly double EGLE's total enterprise value to replace their fleet of 49 vessels. Sounds like an accretive deal to me Bob!

to be continued..

Refining Sector: Things Are Looking Up

On July 13, I wrote a piece calling for an end to the big 2007 in refiner share prices and the refiners, luckily enough, turned down that very day. Here's an excerpt from that piece:

If they went up in lockstep with higher cracks, it stands to reason that the stocks, especially the smaller caps that have experienced significant multiple expansion will full the same pull, if only seasonal in nature as estimate growth slows, and eventually falls.

Finally, I was taking a look at historic forward multiples of earnings and valuations look pretty lofty here. Even (VLO), my favorite refiner is trading a little higher than it normally does on a forward basis. As you go down the market cap chain, the relationship between past trading range multiples and present multiples of forward earnings gets truly stretched.

Here's a link to the full piece in July.

July 13 turned out to be the peak alright, and the little but expensive guys suffered the biggest pullback

refiners-since-peak-100507.jpg

I think the 3Q bad crack spread "news" is largely behind us. I'll be rolling to November positions next week in VLO and TSO and looking at some other, more expensive little names in the group that nevertheless can put on a good run.

refiner-multiple-100507.jpg

 

 

11 Responses to “Wrap – Week Ended 10/05/07”

  1. 1
    zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » October 1st Week Wrap – Public Post Says:

    […] « TGIF – Jobs In Line, Nabors Warns, and Shipping Looking Up Wrap – Week Ended 10/05/07 (In Progress) » 05 […]

  2. 2
    QUARRYMAN Says:

    Z.,

    I’m looking forward to your Nov ideas as I’m winding up all the OCT positions and going on out to Novs and Decs.

    The “Thursday” play for just out of money options is up in the air. Want to find something in the .25 range that has a chance to pop.

    This keeps it fun. Have a great weekend and enjoy the fall weather.

    We’re trailering our horses out into the mountains again. Bow season starts next week… lots of morons with weapons lurking along the horse trails.

  3. 3
    zman Says:

    Morning Q

    By “Thursday” play I assume you mean Thursday on the day before options expiration or the 18th this month?

    It is not enough for a man to know how to ride; he must know how to fall. ~ Mexican Proverb

  4. 4
    drdavis124 Says:

    Z. Did you listen to that webcast? The info helps me better evaluate & react to “Breaking news” ala Ben’s-Rate cut.

    Q. I have 25-cent 2010 CHK leaps

    Phil

  5. 5
    bill Says:

    Z, good write up!

    FWIW, I have drys earning 9.60 in 2007 excluding ship gains so a pe of 10. If rates hold up, they could do 16 in 2008 so at 10 x pe implies 160 stock price.

    the avg panamax rate is over 75 k per day, in q 2 drys earned about 30 k per day, so as you say, the repricing in rates means earnings will explode. Obviously, some of that is now coming into the price as drys 2 weeks ago was in the mid 60’s

    Since the analyst’s have missed the boat with their old earnings numbers, i wonder how much they are missing the others.

  6. 6
    QUARRYMAN Says:

    Z.

    I do mean the Thursday before exp.

    … and then get back up and on.

    It’s a constant dissonance: form over safety.

    I truly hate to wear the riding helmet with my western tack, but as I’m fond of posting: “SAFETY PAYS”

    I’ve hit the ground a few times, it’s a recreational hazard. My QH may crow hop or cross canter occasionally when I hold him back, but he always comes back to me on the ground with a “what happened to you” look in his eyes and grazes nearby.
    ———-
    Dr. Phil, thanks for the CHK tip. I like to ask for Mad Money specs like this, because it shows where one’s mind thinks some hidden value may be.

  7. 7
    Brian08 Says:

    Z,

    Unfrigginbelievable on the small guys refiner P/E ratios now compared to mid-July…I’ve been following WNR falling off a cliff, but that is just an amazing regression back to the mean…Shoulda stayed shorter on it longer…

  8. 8
    Nicky Says:

    This should be of interest:

    http://www.321energy.com/editorials/maund/maund100507.html

  9. 9
    Nicky Says:

    And this:

    http://www.321energy.com/editorials/hoye/hoye100607.html

  10. 10
    zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive Says:

    […] Comments Nicky on Wrap – Week Ended 10/05/07 Nicky on Wrap – Week Ended 10/05/07 Brian08 on Wrap – Week Ended 10/05/07 QUARRYMAN on Wrap – Week […]

  11. 11
    zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » October 9th Public Post – Why Subscribe? Says:

    […] Wrap – Week Ended 10/05/07 […]

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